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Thursday, April 14, 2011

Reality-Based Budgeting

The budget deficit is a multi-generational problem. At least, that's the impression you get if you listen to some in Washington or pretty much any random talking head. If we don't get crazy with the budget scissors, our children and our grandchildren will pay the price. If we do nothing, the nation will be... I don't know, in flames or something.

But yesterday, Annie Lowrey at Slate crunched the numbers and found the real consequence of doing nothing -- eliminating the budget deficit in eight short years.

So how does doing nothing actually return the budget to health? The answer is that doing nothing allows all kinds of fiscal changes that politicians generally abhor to take effect automatically. First, doing nothing means the Bush tax cuts would expire, as scheduled, at the end of next year. That would cause a moderately progressive tax hike, and one that hits most families, including the middle class. The top marginal rate would rise from 35 percent to 39.6 percent, and some tax benefits for investment income would disappear. Additionally, a patch to keep the alternative minimum tax from hitting 20 million or so families would end. Second, the Patient Protection and Affordable Care Act, Obama's health care law, would proceed without getting repealed or defunded. The CBO believes that the plan would bend health care's cost curve downward, wrestling the rate of health care inflation back toward the general rate of inflation. Third, doing nothing would mean that Medicare starts paying doctors low, low rates. Congress would not pass anymore of the regular "doc fixes" that keep reimbursements high. Nothing else happens. Almost magically, everything evens out.


I'm not saying this is the best plan ever. I'm not even saying it's a good plan. Frankly, it's a lousy plan that would depress consumer demand by increasing the tax burden of the middle class and the poor -- by far the two largest economic groups and, therefore, the largest portion of consumers. It's not really a serious proposal anyway. It's more of a "hey, look at this weird fact I found" thing.

But it does show that this whole "multi-generational crisis" thing is BS. The nation's finances are set up so that, if you just switch it over to autopilot, the whole thing fixes itself. Not in the most optimal fashion, maybe, but a fix is a fix. Medicare and Medicaid are fine, Social Security is fine, we don't have to chase down pennies defunding Planned Parenthood or National Public Radio -- in short, we can let those budget scissors rust and everything would be peaches, deficit-wise. Not over generations, but in two years short of a decade. And, if we don't need the budget scissors, we certainly won't need Rep. Paul Ryan's budget chainsaw.

And the Obama plan? It's not exactly Lowrey's "quit pokin' at it" plan. Obama makes some cuts and hikes some taxes. McClatchy has an at-a-glance:

Obama plan graphic

I wouldn't make cuts to Medicaid at all and I'd make up that difference with cuts to our tremendously bloated military budget. The "cuts" to Medicare aren't really cuts at all but, according to another handy at-a-glance from the New York Times, "The proposal seeks to reduce the growth in Medicare spending, including lowering prescription drug spending 'by leveraging Medicare's purchasing power.'" In other words, by allowing the government to negotiate drug prices with pharmaceutical companies -- a no-brainer that should've been done a long, long time ago.

The Obama plan is twelve years, rather than the do-nothing's eight, but it shows again that the "multi-generational crisis" talk is a lot of panicky BS. Besides, adding four years to avoid a hit to the economy in the form of weaker consumer demand isn't really much of a setback.

"I can live with this," Paul Krugman says. "And whatever the pundits may say, it was much, much more serious than the Ryan 'plan.'"

Of course, that really is faint praise. I've been calling Paul Ryan's proposal "fantasy-economics porn," because that's exactly what it is. It assumes the world is the way objectivist libertarians like Ryan wish it was, instead of the way that history shows it actually is. It argues that if you cut taxes, employment will go through the roof -- Ryan's plan projects numbers beyond full employment -- but ignores the fact the we did cut taxes and labor stats suck. I guess eight years of stagnant job growth under Bush wasn't proof enough. Once again, we see the conservative philosophy in action; if what you're doing is failing, it means you have to do more of it.

Let's be honest here: Rep. Ryan's plan, by virtue of being completely ridiculous, set the bar pretty low. So it really should be no surprise that President Obama cleared it. It's not the best budget ever devised, but the Republican alternative may very well be the worst.

And it beats doing nothing. Although, that works too.


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